Pharmacoeconomic principles

1. Pharmacoeconomics
Created by the School of Pharmacy
Relations Committee for AMCP
Updated: January 2020

2. Objectives
• Define pharmacoeconomics
• Differentiate various pharmacoeconomic evaluation methods
• Discuss various considerations essential to evaluating a
pharmacoeconomic analysis
• Provide examples of how pharmacoeconomics is applied in
practice and various roles for the pharmacist

3. Background - Pharmacoeconomics
Process of identifying, measuring, and comparing
costs and consequences of therapies and
determining which alternative produces best
outcomes for resources invested

4. True or False
The goal of pharmacoeconomics is to find the cheapest
alternative

5. Types of Economic Evaluation
Economic Evaluation
Full Economic Evaluation
Cost-Minimization
Analysis
Cost-Benefit
Analysis
Cost-Effectiveness
Analysis
Cost-Utility
Analysis
Partial Economic Evaluation
Cost-of-Illness
Analysis

6. Cost of Illness Evaluation
• Aims to identify and measure total costs attributable to a
particular disease
• Can demonstrate economic burden of disease
• Units of Measurement
o Cost – Monetary ($)
o Consequence – Not measured

7. Cost Minimization Analysis
• Compares costs for therapeutically equivalent drugs to identify
the least costly alternative
• Units of measurement
o Cost – Monetary ($)
o Consequences – assumed equivalent

8. Cost Benefit Analysis
• Primarily used to determine allocative efficiency
• Units of Measurement
o Cost – Monetary ($)
o Consequences – Monetary ($)

9. Cost Effectiveness Analysis
• Compares costs of two or more alternatives versus outcomes measured in
natural units (eg: BP, HbA1c)
• Units of measurement
o Cost – Monetary ($)
o Consequence – health outcome (eg: BP, HbA1c)
• ICER – Incremental Cost Effectiveness Ratio
ICER = ∆Cost/∆Effect
= (CTx1 – CTx2)/(ETx1 – ETx2)

10. Cost Utility Analysis
• Analysis that account for both quality and quantity of life which
are expressed as “utilities”
o Utilities represent patient preferences and quality of life associated
with disease and/or treatment
• Units of Measurement
o Cost – Monetary ($)
o Consequence – Quality adjusted life year (QALY)
• Quality adjusted life year – factor of life expectancy and utility
ICER = ∆Cost/∆Effect
= (CTx1 – CTx2)/(QALYTx1 – QALYTx2)

11. Cost Effectiveness Plane
-500
-400
-300
-200
-100
0
100
200
300
400
500
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
More Costly, Less Effective
Quadrant II
Standard treatment dominant
More Costly, More Effective
Quadrant I
Trade off
Less Costly, Less Effective
Quadrant III
Trade off
Less Costly, More Effective
Quadrant IV
New treatment dominant
∆ Effectiveness
∆
Cost
11

12. Cost Effectiveness Plane
-$500
-$400
-$300
-$200
-$100
$0
$100
$200
$300
$400
$500
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
More Costly, Less Effective
Quadrant II
Standard treatment dominant
More Costly, More Effective
Quadrant I
Trade off
Less Costly, Less Effective
Quadrant III
Trade off
Less Costly, More Effective
Quadrant IV
New treatment dominant
∆ Effectiveness
∆
Cost
12

13. Recap of Pharmacoeconomic Analyses
Model Type Cost Consequences Aim
Cost-minimization Monetary Assumed to be equal Efficiency
Cost-effectiveness Monetary Health Outcome Determine efficiency when
comparators are not
therapeutically equivalent
Cost-benefit Monetary Monetary Resource allocation
Cost-utility Monetary QALY Health related quality of
life gains for comparators
with similar or different
clinical outcome measures

14. Considerations for Designing or Evaluating
Pharmacoeconomic Studies
• Costs
 Direct medical – e.g., medication and administration
 Direct non-medical – e.g., transportation for treatment
 Indirect – e.g., lost wages due to illness
 Intangible – e.g., pain, suffering
• Perspective
 Patient, Provider, Payer, Society
 Perspective dictates what costs are considered

15. Considerations for Designing or
Evaluating Pharmacoeconomic Studies
• Discounting - value of money changes over time
 A dollar is worth more today than in the future
• Sensitivity Analysis
 Challenges results and tests assumptions by altering variables
• Accuracy and transparency
 Clearly documented study design, assumptions, inputs
• Face Validity
 Do the assumptions/input and alternatives reflect reality

16. Economic Modeling
• Analytic models used to predict economic consequences of
coverage, treatment, and access decisions
• Constructed by health plans, pharmaceutical manufacturers,
academic groups, and consultants
• These models are associated with uncertainty

17. One-Way Sensitivity Analysis
• Change one parameter at a time while keeping all others
constant

18. Probabilistic Sensitivity Analysis
• Instead of changing one or more variables at a time, all
variables are simultaneously changed using a simulation

19. Applications in Practice & Roles of the
Pharmacist
• Assist in the design and implementation of research studies
• Evaluate pharmacoeconomic literature
• Apply results to clinical decision making
 Individual patient care
 Formulary/utilization management
 Disease management
 Resource allocation

20. Helpful Resources
• Navarro RP, ed. Managed Care Pharmacy Practice. 2nd edition. Jones and
Bartlett Publishers: Sudbury, MA; 2009.
• www.ispor.org
• https://icer-review.org/
• https://www.equator-network.org/wp-content/uploads/2013/04/Revised-CHEERS-
Checklist-Oct13.pdf
• Husereau D, Drummond M, Petrou S, et al. Consolidated Health Economic
Evaluation Reporting Standards (CHEERS)—Explanation and Elaboration: A
Report of the ISPOR Health Economic Evaluation Publication Guidelines Good
Reporting Practices Task Force. Value in Health. 2013; 16:231-250.

21. Conclusion
• Pharmacoeconomic evaluations consider cost compared to
consequences of treatment alternatives
• Results are used to support population-level decisions
regarding medication coverage and use
• Best-Practice principles should be used in designing
pharmacoeconomic studies to optimize transparency and
reduce bias

22. Purpose of Quality Measures
• Quality measures are a mechanism to help quantify the quality
of care provided
• Quality measures address aspects of care such as:
 Utilization of evidence-based medicine
 Efficiency and effectiveness
 Quality of Life
 Patient Satisfaction
• Useful in pay-for-performance and value-based purchasing
reimbursement programs

23. Thank you to AMCP member Pranav
Patel and Michael Pazirandeh for
updating this presentation for 2020.

24. To improve patient health by
ensuring access to
high-quality, cost-effective
medications and other therapies.
Mission & Vision